Hony to invest in Li & Fung consumer assets
Hony Capital has agreed to invest in several businesses – covering furniture, beauty, and apparel – from Hong Kong conglomerate Li & Fung for $1.1 billion.
The assets will be acquired by a consortium in which Hony and Fung Holdings each hold 45%, while Fung Investments owns 10%. Fung Holdings and Fung Investments are both controlled by the Fung family, which founded Li & Fung. The deal implies a valuation multiple of 14.7x, based on EBIT of $75 million as of September.
Hong Kong-listed Li & Fung supplies clothing and other consumer goods to retailers worldwide. The company said in a filing that the divestment is at an attractive valuation given margins are being squeezed and profit is contracting in product businesses due to significant changes in market conditions. These businesses require significant working capital to fund growth.
Li & Fung's overall revenue fell 11% to $16.8 billion in 2016, while net profit dropped from $421 million to $223 million. The three segments involved in the Hony transaction saw revenue fall from $2.2 billion in 2015 to $1.9 billion last year, while EBIT decreased to 78 million from $89 million.
Following the deal, Li & Fung will pay a special dividend of HK$520 million, or HK$0.476 per share, to shareholders, with the remaining $580 million to be used to strengthen its capital structure. The company will continue to own and operate its core services segment – including its supply chain, logistics, and onshore wholesale business – with a view to transforming itself into a digital company.
“We look forward to working with the management teams of the product verticals to sharpen their distinct strategies. With our value-added services, future success lies in going deeper into their respective product categories,” John Zhao, chairman and CEO of Hony Capital, said in a statement.
The GP, which is currently deploying its latest $2.7 billion China fund, announced it would acquire a 30% interest in Duemmei, owner of Italian fashion brand Mr & Mrs Italy, two months ago.
The Li & Fung transaction is subject to shareholder approval and is expected to close in the first half of 2018.
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